Time for a recap – here are today’s main stories, first on US inflation:

The UK energy market:

The UK retail sector:

And the job cuts planned at Liberty Steel:

Did a Christmas miracle take place on the high street, with many UK retailers reporting rising sales?

My colleague Nils Pratley says the picture is more nuanced:

Did the great British consumer defy recession, inflation and energy bills?

Well, there’s a grain of truth in the gloom-defying narrative, thus the liberal use by big-name retailers of phrases such as “confirm guidance” and “at the upper end of guidance” when forecasting their full-year profits. But, after a week of trading updates, the wider picture is nuanced. The story looks more like this: strong retailers remained strong; shopkeeping’s stragglers, or at least a few of them, fell further behind.

The FTSE 100 brigade can all be placed firmly in the winners’ camp. That’s JD Sports, Next, Sainsbury’s and Tesco: their Christmas numbers were variously solid to slightly better. Marks & Spencer, which hopes to recover sufficiently to rejoin the Footsie ranks (it might, eventually), also qualified with ease.

Then, though, there was the online-only fast-fashion pioneer Asos, which seems to require a pandemic and lockdown for the stars to align for it; its sales went backwards by 8% in the UK and its lowly share price only enjoyed a bounce because the City was braced for worse. Halfords issued a full-on profits warning because it couldn’t find enough car mechanics; Virgin Wines struggled to find customers.

Note, too, that we only get to hear at this stage from quoted companies with early-reporting obligations. While discounters Aldi and Lidl clearly sucked up a lot of sales (though the profits picture for them is far less clear), a big loser, if the industry data on market share paraded by rivals is correct, was Morrisons. The supermarket chain was taken off the stock market in 2020 via a £7bn private equity leveraged buyout that now looks spectacularly badly timed.

More here:

Back in the City, the FTSE 100 index has hit 7800 points for the first time since 2018.

Retail stocks have helped drive the blue-chip share index up, with JD Sports up 5.5%.

Housebuilder Persimmon is up 8.8%, having warned this morning of falling sales as mortgage rate increases and the economic slowdown hit the housing market.

The drop in US inflation last month is cheering European markets, as Michael Hewson of CMC Markets explains:

European markets have continued to push higher after today’s US CPI report came in as expected, with the FTSE100 pushing above 7,800 for the first time since May 2018, as it looks to close in on its record high of 7,900.

The sharp fall in inflationary pressures in the US is helping to translate into weakness in UK gilt yields, with the prospect that lower inflation and lower rates will combine to create a faster decline, and thus diminish the longer-term economic damage to consumer wallets.

This is helping to give a broader boost to housebuilders even as Persimmon followed Barratt Developments yesterday in recording a similar slowing in its sales numbers. Private net sales per week fell to 0.19 from 0.61 in the same period a year ago, an even sharper fall than Barratt, however the shares have managed to push to the top of the FTSE100, as yields fall back and raise the hope of lower mortgage rates.

Despite painting a weak demand outlook for the rest of the year, the sector has seen big share price declines over the last 12 months, Persimmon is down over 50% from its peaks this time last year so it could be argued that a lot of negative news is already in the price, with today’s falling inflation numbers pointing to optimism that some of the worst case scenarios might be avoided.

Sam Bankman-Fried, the founder of collapsed crypto exchange FTX, has insisted he did not steal money, and claimed that a very substantial recovery remains possible.

In a posting on Substack, Bankman-Fried blames the collapse of FTX exchange into bankrupcy on a broad crash in cryptocurrency markets.

A month after his arrest on U.S. fraud charges, Bankman-Fried explains in the post that Alameda, his crypto-currency trading firm, had failed to hedge its market exposure sufficiently, and then suffeed “an extreme, quick, targeted crash precipitated by the CEO of Binance”.

Changpeng Zhao, who runs Binance, announced in early November that Binance would liquidate its holding of FTT tokens, which are FTX’s crypto token.

In mid November, Bankman-Fried writes, FTX International became effectively insolvent, as the “contagion” from Alameda’s collapse spread to FTX and other places

Despite this, “very substantial recovery remains potentially available” he writes, linking to a report earlier this week that FTX has recovered more than $5bn of cash, liquid cryptocurrency and liquid investment securities.

Bankman-Fried adds, in what Reuters dub “a highly unusual blog post”:

FTX US remains fully solvent and should be able to return all customers’ funds. FTX International has many billions of dollars of assets, and I am dedicating nearly all of my personal assets to customers.

The SEC has argued that FTX customer funds were misappropriated for Alameda’s trading activity.

Last month, two associates of Sam Bankman-Fried pleaded guilty to criminal charges related to the collapse of the cryptocurrency exchange FTX and are helping investigators with their inquiries.

Federal prosecutors in Manhattan last month said Bankman-Fried stole billions of dollars from FTX customers to pay debts for Alameda Research, to purchase lavish real estate, and to donate to U.S. political campaigns.

In today’s Substack post, Bankman-Fried argues that if FTX International were to reboot, there would be “a real possibility of customers being made substantially whole”.

He writes:

I didn’t steal funds, and I certainly didn’t stash billions away. Nearly all of my assets were and still are utilizable to backstop FTX customers. I have, for instance, offered to contribute nearly all of my personal shares in Robinhood to customers–or 100%, if the Chapter 11 team would honor my D&O legal expense indemnification.

FTX International and Alameda were both legitimately and independently profitable businesses in 2021, each making billions.

You can read the substack post here.

Prices dropped in the US in December for the first time since May 2020, in an encouraging sign that the inflation crisis may be easing, our US business editor Dominic Rushe reports.

According to the latest consumer price index (CPI) – which measures a broad range of goods and services – the cost of living dropped 0.1% in December compared to a rise of 0.1% in November.

The annual rate of inflation fell to 6.5% from 7.1% in the previous month, the sixth straight month of yearly declines, according to the bureau of labor statistics.

Falling gas prices were by far the largest contributor to the monthly decrease, falling 9.4% over the month, more than offsetting increases in shelter indexes, which rose 0.8% over the month and were 7.5% higher than a year ago.

More here:

Just in: Inflation in the US has fallen, as a decline in energy prices eased the cost of living.

Consumer prices fell by 0.1% month-on-month in December, which should bring some relief to households and businesses.

This pulled the annual inflation rate down to 6.5%, down from November’s 7.1%, the lowest reading in over a year.

Gasoline was “by far the largest contributor” to the monthly all items decrease, more than offsetting increases in the cost of shelter, or housing.

Food prices rose by 0.3% in the month, with the ‘food at home’ index rising 0.2%.

The energy index decreased by 4.5% over the month as the gasoline index declined; other major energy component indexes increased over the month.

Up to 440 jobs are at risk at Liberty Steel, as the steelmaker embarks on the next phase of its restructuring programme.

Liberty, part of Sanjeev Gupta’s GFG Alliance, is planning to cut primary steel production at its Rotherham site, and replace it with imports from abroad.

Liberty will also idle its Newport plant and turn its West Bromwich site into a sales and distribution hub for Liberty products.

The company plans to focus on its “high value alloy steel production” at Rotherham, Stockbridge and Brinsworth in Yorkshire, and blames high energy prices for forcing it to cut production.

Liberty sayd:

Despite the injection of £200m of shareholder capital over the last two years, the production of some commodity grade products at Rotherham and downstream mills has become unviable in the short term due to high energy costs and imports from countries without the same environmental standards.

Primary production through Rotherham’s lower carbon electric arc furnaces (EAFs) will be temporarily reduced while uncompetitive operating conditions prevail.

Liberty says today’s measures will forge a “viable way forward” for the business, which was

Jonathan Reynolds MP, Labour’s Business Secretary, says it is devastating news for Liberty steelworkers, their families and the community built around the steel industry.

Labour wants to see a thriving domestic steel sector that is why we will partner with industry, investing in green steel over the next decade to keep jobs in the UK for generations to come.

“Endless sticking plasters from the Conservatives have left our UK steel sector on the brink. Instead of finding a long-term solution, successive Conservative governments have lurched from crisis and bailouts with no plan to keep UK steel internationally competitive or deliver a return on taxpayers investment.

“Labour has a plan for steel. Investing in the future alongside industry over the next ten years to deliver green steel. Steelworkers need a Government on their side and industry needs a partner that can provide stability not sticking plasters.”

In November, Liberty Steel Group said it had reached an agreement in principle to restructure its debts. Creditors included Credit Suisse and collapsed lender Greensill Capital.

Sam Richards, CEO of pro-growth campaign group Britain Remade, says the government must press on with delivering more clean energy production in the UK.

Here’s his reaction to Investec’s prediction of a larger fall in energy bills in July:

“The latest forecasts from market analysist that energy bills will fall by the middle of this year will obviously be welcomed by millions of households up and down the country. However, there will be no real respite for hard pressed families and businesses until government fixes the core problem: getting more domestic clean energy online as quickly as possible.

“Unfortunately, the government has not yet set out how they intend to clear away the hurdles that so often stand in the way of new cleaner and more affordable energy projects. Not only will these projects deliver energy independence, so we are never again reliant on importing expensive gas from dubious regimes, they will create tens of thousands of good-quality well paid jobs, delivering growth right across the UK.”

UK consumers could benefit from a larger drop in energy bills than expected this summer.

Analysts at Investec have cut their forecast for the UK energy price cap in the second half of this year, following the recent drop in wholesale gas prices.

It now estimates the wholesale cap will fall to £2,478 for an average bill in July, down from its previous estimate of £2,640 earlier this month, and average £2,500 per year in the second half of 2023.

Investec analyst Martin Young says:

Our tariff cap estimates fall again as wholesale prices have nudged down since our previous mark-to-market, and now stand in the region of c.£2,500 for the second half of 2023.

Currently, UK household energy prices are capped by the government at a level where average bills would not exceed £2,500 – although there is no limit on the amount a household can be charged, depending on usage. That cap rises to £3,000 in April.

Regulator Ofgem sets the energy price cap each quarter, based on the cost of energy in the markets.

There have been sharp falls in wholesale gas prices in recent weeks, which are expected to cut the cost of the government’s support. This has followed relatively warm winter weather, and efforts by European countries to cut demand and fill gas storage tanks.

The UK day-ahead gas contract is trading at 158p per therm today, having spiked over 500p/therm in August when Russia squeezed European gas supplies. It hit 400p/therm in the cold snap in early December, but has fallen since.

European gas prices dropped back to their levels before Russia invaded Ukraine last February.

The Bank of England has completed its sales of the £19.3bn of UK government bonds it bought last autumn to stabilise the markets, after the disastrous mini-budget.

The Bank says it bought £19.3bn of gilts under the programme, launched after the surge in UK borrowing costs created a crisis for pension funds. It had offered to buy up to £65bn to bring stability back to the bond market.

Today, it says it has now fully sold that £19.3bn portfolio of temporary gilt holdings, through a series of market operations since November 29, and through “the subsequent bilateral sale of small remaining holdings” after a sale yesterday.

The Bank says its Financial Policy Committee has welcomed the “timely but orderly unwind of this portfolio”.

In October, the Bank explained that some pension funds would have been forced to start winding themselves up, if it had not pledged to buy government bonds, a move which pulled down borrowing costs.

Those funds had used liability driven investment schemes to protect themselves against sudden movements in interest rates. They had used long-dated government bonds as collateral, so had to put up more assets when the value of those bonds fell.

The total number of UK online job adverts has fallen below its pre-pandemic levels, in a sign that companies are cutting back on hiring as the economy slides towards a possible recession.

The total number of online job adverts fell by 3% in the week to 6 January 2023 compared with the previous week, data from Adzuna published by the Office for National Statistics shows.

There were declines in 20 of the 28 job categories and 11 of the 12 UK countries and English regions – with only Northern Ireland seeing an increase.

The ONS says:

The “HR and recruitment” job category saw the largest decrease and fell by 19%, followed by the “energy, oil and gas” job category, which fell by 7%.

Of the 12 UK countries and English regions, the largest falls were seen in the East Midlands, London and the North East, which all fell by 5%.

The total number of online job adverts was also 16% lower than a year ago, with manufacturing adverts dropping by 44% year-on-year.

This is the first time since April 2021 that online job vacancies have been below the pre-Covid-19 baseline.

Energy company Centrica has lifted its earnings forecast again this morning, as it continues to benefit from soaring energy prices following Russia’s invasion of Ukraine.

The UK energy group, which owns British Gas, says it expects to report adjusted earnings of above 30p per share for 2022.

That’s almost eight times as much as in 2021, when it reported adjusted earnings of 4.1p per share.

Centrica says its operational performance has been strong since its last trading update in November, adding:

Infrastructure asset availability and volumes have remained good, and we delivered incrementally strong optimisation performance.

In November, Centrica said its electricity generation and gas production business had been performing well, as had its marketing and trading arm.

Shares in Centrica have jumped 5.7% to the top of the FTSE 100 risers, on a morning in which Citizens Advice warns that three million people across Britain ran out of credit on their prepayment energy meter last year.

Asos has also announced plans to cut over £300m in costs this year to boost its profitability, including cutting staff costs and closing three warehouses.

As well as announcing a 3% drop in revenue in September-to-December, Asos says it has started a £300m package of “profit optimisation and cost mitigation measures”.

They will more than offset the hit from inflation, it says, and lead to a “modest improvement” in profitability this year.

The plan includes winding down three “ancillary storage facilities”, one in Europe, one in the UK and one in the US, rationalising office space, removing 35 unprofitable brands from Asos’s platform and reducing staff costs by 10%.

In October, it announced 100 head office job cuts in a cost-saving move, as demand weakened in the cost of living crisis.

Shares in Asos have jumped over 13% this morning, to 667p.

The UK’s labour shortages mean Halfords has not been able to recruit enough skilled technicians at its Autocentres business.

This will hit higher margin sales during the important upcoming peak in demand for MOTs in the first quarter of this year, it says.

That’s one reason for Halfords cutting its profit guidance this morning, to between £50m and £60m (it previously expected to be at the lower end of a £65m-£75m range).

With “macro-economic headwinds” hitting the cycling and consumer tyre market, Halfords also warns that inflation will still hit consumers – so it doesn’t expect a significant short-term recovery in high ticket, discretionary spending.

Graham Stapleton, Halfords chief executive officer, says the firm has seen strong revenue growth through some “exceptionally challenging circumstances”. He insists the company is taking steps to find enough technicians, including trying to attract women and older workers.

With unprecedented demand in our Motoring Services business, we are particularly impacted by the nationwide skills shortage, with recruitment proving to be extremely challenging in the current labour market.

We are continuing to take a range of actions in order to fill 1,000 new automotive technician roles, which include our new Later Life Apprenticeship programme, as well as a focus on attracting more women and young people from disadvantaged backgrounds into automotive apprenticeships.

We are confident that we can offer unrivalled career progression for automotive technicians, and that this will allow us to attract and retain talented individuals, thereby enabling us to better service the demand through FY24.”

Sales of turkeys and menswear helped Marks & Spencer to report impressive sales figures today, says Victoria Scholar, head of investment at interactive investor:

“Marks & Spencer reported like-for-like Christmas food sales up 6.3% while clothing and home sales grew by 8.6%, topping expectations.

International sales increased by 12.5% with a strong performance in the Middle East. In food, M&S achieved its highest ever market share while volumes through Ocado retail represented around 30% of the average basket on Ocado.com over Christmas.

However M&S warned that there are ‘clear macro-economic headwinds ahead and underlying cost pressures.’ However the retailer expects full-year results to meet November’s guidance.

Marks & Spencer achieved an impressive Golden Quarter with strong seasonal food sales such as of turkeys, in which it retained its leading market share for a third consecutive year. Meanwhile menswear has been a key tailwind for sales at M&S partly thanks to its partnership with the England squad during the football World Cup. It has also been working hard to become an omnichannel retailer, achieving around half of its growth through third party brands, supported by its App as well as click and collect orders.

After a difficult year for the shares, M&S has been picking up lately, rallying by more than 20% over the last month.”

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

It’s Retail Super Thursday, when a raft of big-name UK retailers, including Tesco, Marks & Spencer, Asos and Halfords update the City on how they fared over Christmas.

And Tesco has reaffirmed its profit guidance for the current financial year; it still expects retail adjusted operating profits of between £2.4bn and £2.5bn.

Tesco says it is the only major grocer to increase its UK market share compared with pre-pandemic levels, with a 27.5% share of the market.

Sales in the UK and Republic of Ireland (ROI) over the Christmas period were 7.8% higher than a year ago. Over the 19 weeks to 7 January, like-for-like sales were 6.1% higher.

Ken Murphy, chief executive, says Tesco delivered a strong market share performance in the UK and ROI.

Murphy cautions that there are “challenging conditions ahead”, but says:

I’m extremely proud of the way Tesco has stepped forward to help customers dealing with tough times this Christmas.

By delivering relentlessly on the strategic priorities that we set out 18 months ago, we have made sure that customers know that they will benefit from great value and quality in every part of their basket, however they choose to shop with us.

Tesco points to its Aldi Price Match, which pegs 600 key products to prices at its discount rival, and Clubcard Prices which helped customers spend less on festive products.

Sales volumes on Tesco’s Low Everyday Prices range jumped by 7.4%, as customers looked for cheaper good in the cost-of-living crisis.

Across the high street, Marks & Spencer has declared a “strong Christmas trading performance”, with its food division achieving its highest ever recorded market share in the four-week festive period.

M&S’s like-for-like sales were up 7.2% in last 13 weeks of 2022, with food spending 6.3% higher and Clothing & Home sales up 8.6%.

M&S had its largest ever Christmas sales of over £80m on 23 December; supported by improved availability and strong demand for seasonal lines including turkeys.

Stuart Machin, M&S’s chief executive, says more customers shopped with M&S over the Christmas period than in recent years.

“M&S sustained trading momentum through the peak quarter and both Food and Clothing & Home have delivered strong growth.

M&S Food outperformed the market on volume and value in the critical four-week Christmas period for the second year running and reached its highest ever recorded market share. Clothing and Home delivered another outstanding performance, maintaining its market leadership position with its highest market share in seven years.

But Asos had a tougher time, with UK sales down 8% in the last four months of 2022.

Asos blames “weak consumer sentiment”, saying the economic and political disruption around the disastrous mini-budget in September hit demand. It also cites delivery disruption last month (when Royal Mail workers were on strike):

It says:

This was particularly significant in September, which was impacted by national newsflow, and December, which was affected by disruption in the delivery market.

Total revenues were down 3%, which Asos says reflects “challenging trading conditions”.

And Halfords has cut its profit forecast, citing softer demand in the cycling and car tyre markets on the back of macroeconomic challenges.

It says:

Macro-economic headwinds continue to impact the cycling and consumer tyre markets although we gained share across all our measured markets including Cycling, Motoring and Tyres.

Other big hitters from the UK retail sector have delivered some good Christmas sales numbers so far. Yesterday Sainsbury’s and JD Sports both said their profits would reach the top end of expectations.

Also coming up today

Ministers are being urged to stop the forced installation of prepayment meters, after Citizens Advice revealed that over three million people across Britain ran out of credit last year, the equivalent of one every 10 seconds.

And investors in the financial markets are hoping for a drop in US inflation later today, when December’s Consumer Price Index is released. It is forecast to drop to 6.5%, from 7.1% in November.

The agenda

• 7am GMT: China vehicle sales data for December

• 9.30am GMT: Latest UK economic and business activity data from the Office for National Statistics

• 1.30pm GMT: US inflation report for December